Uncertainty Over HP's PC Group: Who Stands To Benefit?
HP's PSG Fallout: Identifying The Potential Impact
HP's decision last month to either sell or spin off its Personal Systems Group (PSG) drew howls of protest from investors and channel partners and shouts of joy from competitors.
Industry watchers saw in that decision the possibility of HP losing the $42 billion in revenue it gets from selling PCs, as well as one of the technology legs on which its overall business stands.
Yet behind that move lies an important fact: HP's PC business brings offers a meager profit margin of 5.7 percent which is big compared to other PC vendors but a big drag on HP's overall profit.
So here's an update on the status of PSG and a look at which companies are most likely to be impacted by HP's moves.
PSG Status: An Industry Continues To Hold Its Breath
For now, PSG's status remains in limbo. HP's plans to sell it or spin it out were disclosed in August by then-President and CEO Leo Apotheker, who also revealed plans to purchase enterprise software vendor Autonomy for $10.3 billion and to drop its WebOS-based TouchPad tablet.
In the wake of those controversial moves, Apotheker was replaced as president and CEO by Meg Whitman.
Whitman, while pledging to remain committed to HP's hardware business, said no decision has been made about PSG, in effect continuing the confusion about the state of that organization. And while promising to review the board's recent moves, Whitman has also said that she believes HP is on the right track, perhaps not surprising since she was already a member of the board herself when these decisions were made. In the meantime, competitors can take advantage of HP by spreading "fear, uncertainty, and doubt (FUD)."
Dell
HP is the world's largest PC maker, with a second-quarter market share of 17.5 percent, according to Gartner. So the possibility it would sell or spin off PSG was well received at the world's second-largest PC maker, Dell.
Michael Dell, chairman and CEO of Dell the company, told CRN shortly after the HP PSG news broke that the shift in HP's PSG business makes Dell the new partner of choice for HP solution providers and customers.
"Look at Dell," Dell said. "We are here to stay. We are committed. If you look at this whole x86 space, we are the x86 partner of choice. There is no other company that has a complete x86 portfolio."
Lenovo
As vocal as Michael Dell has been on the potential impact of HP's PSG plans, Lenovo, the No. 3 PC maker, has been remarkably quiet.
Chris Frey, Lenovo's North America channel chief, said his company is not paying attention to the news.
"We're not distracted by it," Frey said. "We're so focused on the things that create momentum in the channel. We don't spend time talking about (HP PSG). We have our own goals to chase."
One of those goals is likely to be to overtake Dell as the No. 2 PC vendor. The two were separated by a mere 0.5 points of market share in the second quarter, according to Gartner. And a push to woo HP partners could help Lenovo overtake Dell.
Oracle
Oracle does not have a PC business. But the company does have other reasons to look for gold at HP's expense.
Oracle and HP are at each others' throat in court over Oracle's decision to stop development of its software for HP's Itanium-based servers, as well as over the conditions under which Oracle hired former HP President and CEO Mark Hurd. So any sign of weakness on HP's part, whether real or perceived, is good news for Oracle.
Cisco
For Cisco, the HP situation could be more complicated because, while the two compete heavily in the server, networking, and storage markets, they don't in PCs. However, that could change as Cisco is looking like it may do more in the virtual desktop market, where any instability in PC sales is welcome news.
However, a successful, clean conclusion to the PSG situation, especially if HP spins PSG into a separate company, would immediately turn HP into an even tougher enterprise competitor for Cisco than it was.
The last thing Google needs is more competition in the tablet PC and smart phone device market.
For Google, which is wrestling with Apple for dominance in tablet PC market, HP's decision to stop production of its WebOS-based TouchPad tablet PC and its Pre line of mobile phones removed one of its toughest potential competitors. While the TouchPad had a minuscule impact on the tablet PC market because of its small sales and its quick demise, it was seen as one of only a handful of products that could directly challenge the dominance of the Apple iPad and the Google Android-based tablets.
Google is also benefiting from uncertainty over what HP will do with its WebOS technology. While HP has shelved further development of that mobile operating system, it could pick up development later or sell it to another strong mobile device manufacturer.
Apple
HP's distraction over how to handle both its PSG business and its WebOS business can only be good news to Apple.
Apple has been able to command premium prices for its MacBook portable PC line thanks to the Apple brand and design cachet. However, HP sports some of the best portable design capabilities outside of Apple, and so turmoil in HP's PC business takes the pressure off Apple's MacBook.
Taking WebOS out of the competitive mix -- however temporary -- is even better for Apple. Despite that fact that the iPad has an 80-percent share of the tablet PC market as measured by analyst firm Strategy Analytics, the combination of WebOS and the TouchPad was very much a strong potential competitor, especially in the business market.
Acer
For Acer, which was on the way to becoming the world's largest mobile PC vendor before a supply scandal wracked its European operations and before its former CEO, Gianfranco Lanci, was hired by Lenovo as a consultant, turmoil in HP's PC business means an opportunity for it to recover some momentum.
Acer certainly hopes so. Reuters on Tuesday said Walter Deppeler, head of Acer Europe, was quoted by the German daily Frankfurter Allgemeine Zeitung as saying, "That is a major chance for us because big customers and resellers are uncertain. They are asking themselves: what's next, who can i (sic) work with?"
However, that would require Acer finding a way to increase its visibility in North America, home of the world's largest PC market but a fairly weak spot for the company.
HP
Regardless of PSG's fate, with proper follow-through the long-term result is likely to show HP the overall winner.
If HP decides to keep PSG inside the company, things would likely resort to the previous status quo. Life at HP would go on as before.
However, a separate PSG tied to HP via a common brand name and/or channel program would result in two even stronger vendors. The new HP PC business would still be the top PC vendor, but with a mandate to focus exclusively on that market. And HP, shorn of its low-margin PC business, would be a more formidable enterprise competitor, especially to investors who like the higher-margin enterprise business.